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Suppose the one-year transition matrix is as follows Intial Rating Ratings at year end...

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Question

Finance

Suppose the one-year transition matrix is as follows

Intial

Rating Ratings at year end (probability %)

AAA

AA

A

BBB

BB

B

CCC

Default

AAA

90.81

8.33

0.68

0.06

0.12

0

0

0

AA

0.70

90.65

7.79

0.64

0.06

0.14

0.02

0

A

0.09

2.27

91.05

5.52

0.70

0.26

0.01

0.06

BBB

0.02

0.33

5.95

86.93

5.30

1.17

0.12

0.18

BB

0.03

0.14

0.67

7.73

80.53

8.84

1.00

1.06

B

0

0.11

0.24

0.43

6.48

83.46

4.07

5.20

CCC

0.22

0

0.22

1.30

2.38

11.24

64.86

19.79
  1. What is the chance that BB loans will be upgraded over one year?
  2. What is the chance that BB loan will be downgraded over one year?
  3. What is the chance that the BB loans will be downgraded to rating B in two years?

Answer & Explanation Solved by verified expert
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